For Clean Edge's prediction to come true, the cost of PV-generated energy will need to continue to fall to compete with wind on a global basis. One of the biggest contributing factors to PV generation growth has been the sharp reduction in the cost of crystalline silicon PV modules, which have seen prices fall by more than 65% in the past three years to less than $1,000/kW (EUR 700/kW).
Solar PV is now delivering low-cost electricity in a range of locations, including the south-west in the US, parts of India, China, Africa, Latin America as well as Germany — in part due to very low financing costs, according to the International Renewable Energy Agency (Irena). Extensive data and comparisons of the cost of electricity generated by utility-scale PV and wind projects in the large renewable-energy markets in North America, China, India and Europe is lacking. The analysis that is available varies in quality and comparability, with few examples of direct comparisons between all of these markets. In this respect, Irena's analysis stands out.
The US is an established market for both wind farms and utility-scale PV plants that has yielded some of the lowest costs for electricity generated by these two types of renewable-energy sources.
Before examining current costs, it is worth looking at some recent historical data on prices for wind and PV electricity. A report titled Renewable Power Generation Costs — Summary for Policy Makers, published by Irena in November 2012 contains data on the typical levelised cost of electricity (LCOE) and weighted average cost ranges for different types of renewable-energy generation for different regions gathered in 2011.
According to the findings, costs of wind in North America, which are shown to be on average under $0.07/kWh, are some of the lowest of all global regions, alongside China and India. North America also recorded the second lowest solar PV costs globally, at around $0.16/kWh, after Latin America, which has the lowest LCOE and weighted average costs for solar PV (although not for wind, which is $0.095/kWh).
Tracking PPA prices
Based on fresh data for 2013 gathered by Irena, the cost of onshore wind production in the midwestern states of the US is as low as $0.05/kWh, excluding production tax credit subsidies, for the most competitive projects, although average values are likely to be higher than this. Likewise, costs suggested by Irena's analysis of available data could be as low as $0.10/kWh, without subsidies, for the most competitive solar PV projects in the US's Southwest. In both cases Irena assumes a weighted average cost of capital of 10%, so lower financing costs would reduce these figures further.
In the US, in terms of the investment costs per kilowatt, solar data for the final quarter of 2013 came in at $1.6-3.4/MW for utility-scale solar PV, according to Irena. Verified wind data for 2013 is not yet available, but average costs are expected to be in the $1.8-1.9/MW range, with some projects as low as $1.45/MW. The very best solar PV projects in the US have capacity factors of around 30-31%, for wind in a similar best-case scenario they are considerably higher. While these do not take factors such as operations and maintenance costs into consideration, the costs for building a wind farm in a location with good wind resources are considerably lower than for an equivalent PV project.
Funded by the Department of Energy, through its SunShot initiative, California-based Lawrence Berkeley National Laboratory (LBNL) recently began analysing project costs, performance and pricing trends for large-scale solar technologies in the US. The research has included tracking power purchase agreement (PPA) prices for both wind and large-scale solar PV.
Utility-scale PV in the US increased from just 5% of annual PV installations in 2008 to 54% in 2012, making it the largest segment of PV in the US for the first time too, over small-scale rooftop residential and commercial installations. This trend is projected to continue through to 2016 at least.
Based on a sample of nearly 4.28GW of solar, mainly PV, capacity, consisting of more than 50 separate contracts encompassing both operational and planned projects, LBNL has found that levelised PPA prices have fallen by more than two thirds in the past five years.
The prices are levelised over the full term of the contract, after accounting for any escalation rates as well as time-of-delivery (TOD) factors. Used in some states, TOD factors measure the varying energy and capacity value of electricity delivered in different time periods to compare generation profiles and value the energy appropriately. Solar, especially PV, has been subject to a strong downward pricing trend since 2007. In 2008, for example, weighted average PPA prices were just over $0.175/kWh, falling to just over $0.05/kWh in 2013, according to the report.
"Historically, wind had a cost advantage. In the last four to five years, solar costs have declined so that in 2012 and 2013 solar PPA contracts were being signed at a lower price than wind in the southwestern states of Arizona, New Mexico, Nevada and California," says Mark Bolinger, co-author of LBNL's study.
The findings show that solar has given wind a run for its money, with weighted average PPA prices for solar (excluding subsidies) actually dropping below those of wind in 2012, to just under $0.08/kWh for solar, compared with just over $0.08/kWh for wind. Bolinger expects the trend to continue as the study is tracking projects signed, but not yet built, so continued declines in module pricing are expected to reduce PPA prices as construction starts in the next year or so.
Solar's competitiveness with wind is helped by the technology's greater time of delivery value for utilities (see box below). The next question is whether the closing price gap between wind and solar that is taking place in the southwestern states can be extrapolated across the US, or even further afield. Wind is likely to remain competitive in the interior states, such as Oklahoma where levelised PPA costs are around $20/MWh, according to Bolinger. "But other criteria need to be considered. As the wind build-out continues in the interior states, this will probably require more investment in transmission cables to get the power out to urban areas, where the demand is," he says.
Leveraging economies of scale
Dolf Gielen, director of Irena's innovation and technology centre, in Bonn, Germany, confirms that costs of recent utility-scale solar PV projects in the southwestern US are now among the lowest in the world. This cannot be extrapolated globally. The exception is western regions of India, where there are high levels of irradiance and a few key states are pushing ahead with very large-scale PV projects. In recent years the US has been driving the trend for supersized PV farms. In California, for example, PV projects under construction, both by public utilities and private developers, are several hundred megawatts in size. But India is taking this trend even further, with a 4GW PV project in the pipeline in Rajasthan.
Meanwhile, the onshore wind industry, which is more mature than the ground-mounted utility-scale PV industry, has already gone through the process of leveraging economies of scale that are possible with building large-scale wind farms. But, while scaling production capacity in some industries, including fossil fuel-fired generation and nuclear, require large figures to halve unit capacity costs, size has an impact at much lower levels in renewable projects. From 50-100MW and 200MW wind projects the average costs are not substantially different, according to Gielen.
For solar PV, which is more modular than wind, the threshold is even lower — 10-20MW. LBNL has found that for many utility-scale PV projects the basic modular unit is a 1-1.5MW "power block", a pre-fabricated package of components, such as modules, inverters, trackers, controllers and supervisory control and data acquisition, designed to be easily scalable. LBNL has found that economies of scale even appear to tail off, or are offset by higher costs elsewhere.
Gielen agrees that it remains to be seen if very large-scale solar PV projects offer opportunities for significant cost reductions. "What is clear from the analysis to date is that the overall size of the market, its health and policy certainty over the long term creates - with efficient support policies - the conditions for a large number of players, and the competitive pressures this creates drives down the balance of system costs."
Solar cost decline slowing
LBNL research has found that even though the installed prices for solar, especially PV, have fallen, the pace of decline slowed in 2012. There remain predictions, particularly in Europe, that the installed costs for PV will fall below those of wind by 2025 (next month Windpower Monthly will review the recent EU report on this). But, compared with dramatic reductions of recent years, PV module prices will not fall so rapidly this year.
Whether this will affect the cost of PV-generated electricity remains to be seen, especially in the US, where modules now make up a smaller proportion of overall costs. "In the US, balance-of-system costs for PV are high compared with other markets, so there is considerable scope for these costs to come down, which would contribute to price decreases even if module prices do remain the same or increase slightly," says Bolinger.
Even though a stabilising of PV module prices will ensure that the LCOE of solar PV systems will decline more slowly, the focus will turn to driving down balance-of-system costs to push down the price of solar PV-generated electricity over the remainder of this decade. In comparison, wind turbine prices are falling after a period of high prices and increasing LCOEs, despite improvements in turbines that have increased capacity factors. However, if the cost of wind turbines continues on a downward trajectory, potentially caused by overcapacity in turbine supply, LCOE reductions for onshore wind might pick up again.
"Continued cost reductions for wind and solar will occur to 2020 and beyond," Dielen adds. "However, given how far costs have fallen, these reductions in absolute terms will not be as dramatic as in the recent past. But average costs will continue to fall."
TIME OF DELIVERY REDUCING SOLAR ADVANTAGE
LBNL took time-of-delivery factors from Pacific Gas & Electric, a large public utility serving parts of the US Southwest, and applied these to a theoretical $100/MWh base PPA price for both wind and solar PV. Over a year, solar earns in the region of $25/MWh more post-TOD revenue than wind.
The vast majority of solar's time-of-delivery advantage over wind comes from differences in diurnal generation profiles - solar electricity is not generated at night.
But, it is important to note that as solar penetration increases in the coming years, causing net peak load to shift later into the afternoon or evening, PV's TOD advantage will likely diminish. Other factors, such as existing generation capacity, peak plant generation costs, grid constraints and regional electricity market designs, will also impact the incremental value of solar over the average.